Online savings accounts are a great alternative to using your traditional bank. Sure, you can get an account with your regular local bank and get online access but online access is not what it is all about. An “online only” account has a number of benefits that can help you save more effectively. Let’s take a look.
They Have Higher Interest Rates
Saving money is all about stacking dollars, so you should be concerned about the interest rate that you receive. It is your money and why should you let a bank use it without some benefit to you.
You typically get a much higher rate of return with an online account. Currently, the average big local bank will give you about .1% APY and you can get closer to 2.0% APY with an online account. Obviously this is a huge difference. The big local banks basically allow you to store your money with them while an online account helps you earn.
Sure, 2 percent is not a huge return, but it is definitely a noticeable improvement. At that rate, a 10000 dollar savings account would earn just over 200 dollars a year with compound interest. That or you could earn about 10 bucks with a big local bank.
One word of caution though when shopping for a rate, read the reviews. Many online banks will offer an introductory rate to get you then and then slash it very quickly over the following months. Some will even nickle and dime you to death with fees. The highest rate will not always be the best. Read the review and try to choose one of the larger institutions like Goldman Sachs or Capital One.
They Take Longer To Access
For those of you who are spenders by nature, quick access to your money can be a big problem.
If you have an account with the same bank where you have a checking, you can transfer money almost instantly. This sounds great, but if saving is your goal, it could be a problem.
When you can instantly transfer money from savings, it makes it too easy to spend. Those impulse buys become possible with just a click of a button.
With an online savings account, you still have easy access to your money but it is not instant. It might take one or two business days to actually get your money. This makes the money accessible in an emergency but not instantly available for rash purchases.
For those of you that have a hard time controlling old spending habits, an online savings can be a real asset.
Your Money Is Out Of Sight
Out of sight and out of mind. You can’t be tempted by something that you do not see.
If you are like me, you are in your online checking account every day. Every time I access it, I can see my savings balance.
With my online savings, I check the balance once or maybe twice a month. This puts it out of sight and out of mind. If you are an impulse buyer, this is a huge advantage.
When you can not see the money, it becomes more like an investment account that is untouchable. When you are budgeting and paying your bills, you are less likely to consider it part of your disposable resources.
There Are No Monthly Charges
Paying money to save is just ridiculous. When you deposit money into a savings, you are allowing a bank to use it in exchange for interest. Why should you have to pay for that?
This is not to say that all online accounts do not have monthly fees, but most do not. With monthly fees at many local banks being 8 to 10 dollars, you can save around 100 dollars a year by using an online account.
There are a few online accounts that have fees, although they can often be avoided if you maintain a minimum balance. Avoid the ones that charge you a monthly fee, even if they waive it for having a minimum balance. There are just too many other savings accounts out there to choose from and even if you expect to maintain a certain balance, things happen.
Your Money Is In A Different Category
All money is not the same but if you treat it that way, it will seem so.
When you have a checking account and a savings account from the same bank, they tend to blend together. Since they are linked together, they seem like the same money. This can make it hard to keep that savings separate and to be blunt, it can make it hard for you to leave the money be.
When your account is online, at a different institution, it is much easier to put it into the investment category, separate from your regular spending accounts. Sometimes just putting different labels on things can help you to stay disciplined when it comes to things like savings.
As you can see, there are a number of great reasons to choose an online savings account. It can help you stay motivated, keep your hands out of your nest egg and even make you an extra 300 to 400 dollars a year in interest.
So, if you are just starting out with savings, it is a great place to turn. If you already have a local savings, consider making a switch, you will be glad that you did.